Daijiworld Media Network - Mumbai

Mumbai, Apr 14: Banks are increasingly facing a tightrope situation as credit growth continues to outpace deposit mobilisation, leaving limited options to bridge the gap. Latest data from the Reserve Bank of India indicates that deposit rate transmission has reached nearly 100 basis points against a 125 basis point cut in the repo rate, suggesting most of the easing has already been passed on to depositors.

Analysts now believe deposit rates may have bottomed out and could move upwards in the coming months.

Jignesh Shial, director and BFSI lead at Ambit Capital, said persistent liquidity constraints and macroeconomic uncertainty have exhausted the scope for further reduction in term deposit rates. He added that inflationary pressures, partly driven by geopolitical tensions such as the Middle East conflict, could even prompt a repo rate hike, pushing deposit rates higher.

The challenge, however, is structural. Deposit growth has consistently lagged behind credit expansion over the past decade. Between 2023-24 and December 2025, deposits grew by 9%, compared to credit growth of 11.3%. The gap was even wider during 2021-22 to 2023-24, with deposits rising 11.9% against a sharp 17.6% increase in credit.

In contrast, earlier periods such as 2017-18 to 2021-22 saw deposits grow faster than credit, helping banks maintain healthier liquidity conditions.

Sanjay Agarwal, senior director at CareEdge Ratings, noted that while lending benchmarks like MCLR and EBLR influence deposit pricing, banks are likely to keep term deposit rates competitive to attract funds.

He added that sustained competition for deposits, coupled with stronger credit demand, will keep funding costs elevated and continue to put pressure on banks’ margins.